Agilent Technologies Inc. (NYSE:A) just extended its diagnostics franchise into one of oncology’s toughest corners. On July 23, the company said European regulators had certified its PD-L1 IHC 22C3 pharmDx test, Code SK006, as a companion diagnostic for epithelial ovarian, fallopian tube, and primary peritoneal carcinoma. That lets pathologists flag patients who might benefit from Merck’s Keytruda. It is a narrow, technical-sounding approval, but it adds up to something bigger: Agilent’s diagnostics business keeps racking up new indications while competitors scramble to keep pace.
Bull Case: A Diagnostics Machine That Keeps Adding Indications
This is now the eighth CE-marked indication for the 22C3 pharmDx assay in the EU, following FDA approval of a related PD-L1 test (28-8 pharmDx) for esophageal and gastric cancers just nine days earlier. Each new label doesn’t require Agilent to build a new product; it just extends the reach of an assay already running in labs worldwide, which is a high-margin way to grow. Agilent has also been adding inorganically, closing its acquisition of Biocare Medical in June to deepen its clinical pathology reach, the same market where this new ovarian cancer approval lives. Together, the pipeline of regulatory wins and the acquisition strategy point to a company compounding its diagnostics footprint one label at a time rather than swinging for one blockbuster product.
Bear Case: A Crowded Diagnostics Field With A Scarier Neighbor
Companion diagnostics is not Agilent’s alone to win. Danaher Corporation (NYSE:DHR), through its Leica Biosystems unit, competes directly for the same pathology lab budgets and just agreed on July 14 to acquire StatLab Medical Products to strengthen its own histology and AI-pathology pipeline. Danaher’s own stock cratered 14% on July 21 after it trimmed its core revenue growth outlook, even though it beat on earnings and raised its profit forecast.
That is a reminder that life sciences tools names can be punished hard for even a modest guidance cut. If sentiment sours on the sector broadly, a steady drumbeat of diagnostic approvals may not be enough to shield Agilent’s stock from a similar reaction, since it trades at a premium multiple that assumes little goes wrong.
Another aspect to look out for is how individual labels may not produce enough increase in revenues unless associated therapies achieve broad clinical adoption and testing volumes grow meaningfully. Competition remains another risk as well.
Agilent Vs. Danaher: What The Market Is Pricing In
Hedge fund interest has cooled on both companies. Agilent’s hedge fund count fell to 63 in the most recent quarter from 71 in the prior one, and Danaher’s dropped further, to 110 from 125. Short interest stays modest for each name, with roughly 2.7% of Agilent’s float sold short against about 1.6% for Danaher, suggesting neither stock draws heavy organized skepticism right now.
As of August 2, Agilent trades around a 20.58 forward P/E after a steady climb through the summer. Danaher trades at a similar 22.88 forward P/E, a gap that has narrowed sharply since Danaher’s post-earnings selloff. The relatively similar multiples suggest how the market is assigning comparable valuations to the companies despite their different catalysts and risks.
Small Approvals, Bigger Questions
Agilent’s EU approval may not be financially material, but it reinforces a strategy of compounding small label expansions rather than chasing one big bet. The real question is whether that steady cadence can translate into meaningful growth and solid execution, especially with a bigger rival like Danaher stumbling in the same pathology labs.
While we acknowledge the risk and potential of A and DHR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than A and DHR and that has 10,000% upside potential, check out our report about the cheapest AI stock.
[/im-promo]
READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In.
Disclosure: None. Follow Insider Monkey on Google News.
Hedge Fund Resource Center